Can Coinstar, Inc. (CSTR) Weather the Shorts?

Coinstar, Inc. (NASDAQ:CSTR) is clearly trying to slowly transition its user base of DVD enthusiasts to over-the-top streaming just like Netflix, Inc. (NASDAQ:NFLX) did. Video streaming giant Netflix, Inc. (NASDAQ:NFLX) has been slowly transitioning its DVD-by-mail customers to the online streaming outlet. As a result, Netflix now has more than 36 million global subscribers for its streaming business, and roughly 8 million DVD consumers in the U.S.

However, Redbox’s value proposition is a little different, it enables users to watch movies barely 30 days old for a few dollars only. And its streaming business is largely geared towards movies, which differs from Netflix, Inc. (NASDAQ:NFLX), Amazon and Hulu, all of which are leaning more towards serialized TV Shows. Coinstar, Inc. (NASDAQ:CSTR) made an additional capital contribution of $14 million in Q1 to the JV with Verizon, and its share of losses from the start-up amounted to $6.4 million from its 35% ownership and the other 65% is owned by Verizon.

Ripe for a short squeeze

For 2013, the company is expecting Y/Y growth of 9%-17% for the top-line to end at $2.39-$2.55 billion. Coinstar, Inc. (NASDAQ:CSTR) laid out projected investments of $180-$205 million to its businesses and hopes to earn free cash flow of $185-$205 million.

While the Physical DVD market is getting smaller, the decline came down to single digits in the last quarter. Redbox has largely been a beneficiary of the closures in local DVD stores, as well as Blockbuster stores. The company has sales growth, is generating decent amounts of free cash flow, and is expanding with new kiosks in Canada.

The company’s value proposition is simply enabling consumers to watch new release content from Redbox. Coinstar, Inc. (NASDAQ:CSTR)’s recent strategic partnerships with TD Bank and PayPal represent great positives for the company as well. If the company meets its near-term expectations, which it will likely accomplish, the stock is ripe for a short squeeze.

The article Can Coinstar Weather the Shorts? originally appeared on Fool.com and is written by Ishfaque Faruk.

Ishfaque Faruk has no position in any stocks mentioned. The Motley Fool recommends Netflix. The Motley Fool owns shares of Netflix. Ishfaque is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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